The steep drop in house prices during the 2007-2009 recession likely held back hiring by start-up companies during the recovery, which could help explain why overall U.S. job growth has been so weak, according to two San Francisco Fed economists.

“Our analysis suggests that between March 2010 and March 2011, lower employment growth at start-ups may have subtracted as much as 0.7 percentage point from total job growth, translating into roughly 760,000 fewer jobs,” wroteLiz Laderman andSylvain Leduc in an Economic Letter released Monday.

The link between home prices and start-up firms is “intuitive,” the economists wrote, since most businesses initially rely on personal or family assets. “Lower house prices reduce homeowners’ equity and wealth, which can restrict an important source of funding that entrepreneurs typically access to start new businesses,” they wrote.

And start-ups, they wrote, are especially important to nascent economic recoveries because they generate faster employment growth than do mature firms. In the first year following the bottom of the 1981-1982 recession, employment at start-up companies – defined as firms less than five years old and fewer than 20 employees – grew 28.3%. The growth rate was 18.8% in the year following the 2007-2009 recession’s low point for jobs.

“If start-ups had grown at the higher rate, and if employment at all other firms had continued to grow at its actual pace, total employment growth between March 2010 and March 2011 would have been 2.3%, compared with an actual rate of about 1.6%,” the economists wrote.

The researchers did offer a hopeful prediction. As home prices continue to rebound, they “may be pulling start-up growth back toward a faster pace and contributing to the higher rate of total job growth,” they wrote.

About Real Time Economics

Real Time Economics offers exclusive news, analysis and commentary on the U.S. and global economy, central bank policy and economics. Send news items, comments and questions to the editors and reporters below or email realtimeeconomics@wsj.com.